The stock has gotten four downgrades this morning, from Citigroup’s Walter Pritchard, cutting the stock to a Sell from Neutral; Nomura Equity Research’s Rick Sherlund, cutting to Neutral from Buy; Mark Murphy of J.P. Morgan, cutting his rating to Neutral from Overweight; and MKM Partners’s Kevin Buttigieg, cutting his rating to Hold from Buy.

Pritchard, who slashes his price target to $38 from $50, writes that the Q2 report saw Microsoft delivering upside on low-margin goods, such as its Lumia line of smartphones, and Xbox, which meant that less profit flowed to the bottom line as Windows and other high-margin items “were weaker.”

Although Microsoft blamed the foreign exchange hit from a rising dollar for holding back revenue, “there is more to the weakness than this,” he writes.

Pritchard concludes the “end-of-life” of Windows XP , which drove a corporate upgrade of PCs last year, and, hence Windows, was a bigger positive factor than previously realized for Microsoft:

While FX does weigh on revenue and EPS (as well as help OpEx), revenue guidance comes down by ~12% vs. street for Q3 while FX impact is just 4% of this. We chalk up most of the rest (~$1B vs. our est) to Windows (~40% of it) as well as lower hardware revenue (coupled with lower GM). It is now clear that WinXP expiration had boosted results in FY14 much greater than anyone anticipated (and was messaged by MSFT).

J.P. Morgan’s Murphy, cutting his price target from $53 to $47, is inclined to accept Microsoft’s explanation that the main issue is foreign exchange, and he’s not overly worried about the poorly performing emerging markets, such as Russia:

An expectation for continued weakness in China (govt tensions), Russia, and Japan (demand lull post the sales tax increase) also adversely impacted guidance, although we view these as likely to be part of a normal ebb and flow as opposed to permanent issues.

What he’s actually concerned about is Microsoft’s intent to keep on spending right through the revenue slump:

While revenue guidance was impacted by adverse FX movement consistent with expectations, Microsoft will not exercise as much spending discipline as we had anticipated, resulting in an 8% reduction in our FY15 EPS forecast. While incremental commentary included offsetting puts and takes (e.g., a doubling of the share repurchase pace through Dec 2016, and geopolitical-driven weakness in China/Japan/Russia), the downward EPS revision could delay the timeframe for shares to sustainably cross above $50 in our view.

On the other hand, Bernstein Research‘s Mark Moerdler, reiterating an Outperform rating on the shares, and trimming his price target by a dollar, to $55, leads off with things here to cheer, such as the rise in cloud computing revenue:

Cloud growth was strong with commercial Cloud revenue growing 114% and reaching a $5.5B revenue run rate, which we note is larger than Salesforce.com’s subscription revenue annual run rate. Meanwhile, Office 365 commercial seat growth was 88% Y/Y. Consumer Office subscription growth accelerated in the quarter, growing 30% Y/Y and reaching 9.2M subscribers. He also notes that the company’s commitment to finishing its share buyback authorization — $31 billion currently — by the end of fiscal ’16 is a big boost in payout:

Microsoft will be increasing their return of capital announcing they would buy-back $31B of stock over the next 8 quarters. This is almost double the buy-back rate from a year ago and > 50% the recent average.

Moerdler acknowledges the forecast “may worry some investors,” but he thinks the quarter and the outlook actually show Microsoft moving right along with the changes he’d hoped for, and he thinks the shortfall is no big deal:

Discussions with management revealed that a large portion of the weakness in licensing sales were due to weakness in Russia, China and Japan. Russia and China suffered from geopolitical issues which are not expected to improve in Q3. Japan was considered to be a very different problem where a recession has partially impacted sales, but more so the Y/Y compare was difficult due to the VAT change in Japan. Y/Y sales compares in Japan are expected to improve in Q3 as this anniversary of the VAT change occurs. We have been looking for 1) improving margins 2) return of more capital 3) strong Cloud growth and longer term Cloud margin improvement. We saw 2 of 3 of these this quarter and management has announced the increased buyback which is in-line with the 3rd. Guidance appears weak but given the FX and geopolitical issues we believe our thesis will continue to play out. We believe weakness in the stock creates a buying opportunity.

Pacific Crest‘s Brendan Barnicle has a slightly different take on things. He reiterates an Outperform rating, and a $58 price target, writing that the company has “decoupled itself from the PC cycle,” to an extent, but that its transition to cloud computing is not going to be without pain:

Microsoft is adapting its model, including Windows, to the cloud, and that transition will not be smooth. Nevertheless, Microsoft posted 114% year-over-year growth in Commercial cloud, driven by Office 365 and Azure. Similarly, Office 365 Home and Personal subscribers increased 30% sequentially to over 9.2 million. But Microsoft’s guidance was disappointing, and a bit confusing, largely because of management uncertainty about the move to the cloud.

And that transition to cloud causes his own estimates to become less sure, he writes:

We are lowering our F2015 revenue estimate to $94.1 billion from $98.0 billion, and lowering our F2015 EPS estimate to $2.37 from $2.59. While most of the reduction is due to Windows and FX, the move to subscription revenue makes it more difficult to offset the Windows weakness. Like its large-cap peers, Microsoft is adapting its business to the cloud. FQ2 and in the company’s guidance make it clear that Microsoft will struggle with this transition. Yet, Microsoft still remains better positioned than its peers.

Update: At the open, the stock has deepened its decline, off $4.60, or 10%, at $42.41.

Microsoft (MSFT) this afternoon reportedfiscal Q2 revenue that beat analysts’ expectations by a hair, and earnings per share in line with consensus, and said its sales of cloud computing continued to soar even as sales of Windows software cooled because the corporate PC buying binge of 2014 was tapering off.

Revenue in the three months ended in December rose to $26.5 billion, yielding EPS of 71 cents

Revenue from OEM PC makers in the “Pro” class of devices fell 13%, “and was impacted by the business PC market and Pro mix returning to pre-Windows XP end of support levels and by new lower-priced licenses for devices sold to academic customers.”

In addition, revenue from “non-Pro” types of PC makers also declined 13%, “with license growth from opening price point devices.”

Microsoft said its revenue from commercial uses rose by 5%. Within that, “commercial cloud revenue” was up 114%, at $13.3 billion. That includes sales of “Office 365” and Azure application hosting.

Sales of the traditional Office suite of products declined by 1%.

Server software rose by 9%. That includes “double digit” sales of the “SQL Server” databaseand the “System Center” management console.

Shares of Microsoft (MSFT) closed up $1.21, or 2.6%, at $47.13, as the Street digested yesterday’s details of the forthcoming Windows 10 operating system, the next major installment of the company’s client computing software.

Microsoft talked about a number of aspects of Win 10, and also showed off some other things that caught the popular imagination, such as “HoloLens” technology to augment one’s perception using virtual reality.

But the Street today fixated more than anything on the word “free,” as in, many users of Windows will get this version as a free upgrade:

Daniel Ives, FBR & Co.: Reiterates an Outperform rating. “At today’s event, Microsoft announced free Windows 10 upgrades for certain Windows users (Windows 7, Windows 8.1, Windows Phone 8.1) who upgrade in the first year, which we view as a major step in the right direction as Microsoft tries to “spread the gospel” to developers, consumers, and enterprises worldwide. In our opinion, this pricing strategy is a necessary evil as Nadella and Microsoft have recognized that the “golden goose” and major revenue opportunities will present themselves after the upgrades have taken place. We believe Microsoft needs to lay seeds for its cloud centric strategy, and Windows 10 is the epicenter of that strategy, looking to attract users to this comprehensive ecosystem via upgrades onto this next generation platform.”

Ed Maguire, CLSA: Reiterates an Outperform rating, and a $53 price target. Microsoft’s decision to make Windows 10 upgrades free for a year is a break from past precedent, reinforcing the long-term transition in business strategy from products to products plus services and fully recognizing the need to compete for, not compel, customers to use Microsoft products. The new Microsoft under Satya Nadella is more about monetizing innovation streams than just selling pure software, as advances like HoloLens push the creative envelope in newly practical ways.”

Gregg Moskowitz, Cowen & Co.: Reiterates a Market Perform rating, and a $50 price target: “Main surprises: 1) Free upgrades within the first year for Win 7 and Win 8.1 users (we had expected free upgrades for Win 8.1, but not Win 7), which we believe sacrifices near-term revenue opportunities though there’s a monetization oppty on the backend; 2) Holographic capabilities (very exciting and with great potential, but don’t hold your breath for this to broadly pervade your living room anytime soon); 3) Surface Hub (large, high-end touch display a logical move, but broad corporate Win 10 device adoption is a prerequisite for success). Several announcements from yesterday fully confirmed and/or supported our expectations. Most notably: 1) Cortana everywhere, 2) a new web browser (Project Spartan), and 3) the ability to play owned Xbox One games on Windows 10 tablets/PCs.”

Brendan Barnicle, Pacific Crest: Microsoft is likely to charge for Windows on new devices. So, OEM Windows revenue is likely to still appear in device and consumer (D&C) licensing, which is 16.6% of F2015 revenue. However, it is unclear if the new support subscriptions and services will also appear in that revenue line or in the D&C other revenue line. Ultimately, Windows is building more consistency and visibility into Windows revenue, just like Office 365. Fortunately, consensus calls for a 14% decline in D&C licensing revenue in F2015 and a 2% decline in D&C licensing revenue in F2016. New Features and New Uses Will Drive New Revenue Microsoft demonstrated several new features in Windows 10. Initial feedback from the channel has been very encouraging. Windows 10′s revenue model is not entirely clear, at this point. The new features in Windows 10 is likely to create new users, which could drive new monetization and new revenue.”

Walter Pritchard, Citigroup: Reiterates a Neutral rating, and a $50 price target. “Given past uneven adoption by customers of new versions of Windows and what is likely more difficulty monetizing Windows in consumer market, a free update makes sense. Especially when paired with delivering Windows 10 “as a service” (periodic updates to the operating system, without cost, for the life of the device) and the benefit to developers of having more devices on one, modern platform [...] The thought process behind the free upgrade / “as a service” model is to make Windows a more
appealing platform to developers by initially attracting a significant share of Windows customers (unifying the versions they are using) and keeping all customers on the same, up-to-date version in the future. The question remains if this will be enough to attract a critical mass of developers to Windows form factors other than the PC Office.”

There do not appear to be any ratings changes at this time, but some price target changes here and there. Jim Suva of Citigroup, reiterating a Neutral rating, cuts his price target to $170 from $180, writing that he often gets asked what it would take to get more positive on the stock.

For one, he’d like to see “not only stability in sales (or even sales growth) but also EPS organic growth.” Suva adds that “given the rapid rate of innovation within the competitive landscape, we are not convinced IBM fully grasps the severity of these competitive dynamics.”

Shares of Netflix (NFLX) are surging $62.70, or almost 18%, at $411.50, pre-market, after the company yesterday beat Q4 EPS expectations on better-than-expected subscriber numbers and seemed to restore confidence with its subscriber forecast this quarter as well.

Price targets are moving higher, and there’s one upgrade this morning, from Anthony DiClemente of Nomura Securities, who raises his rating to Buy from Neutral, with a $500 price target, writing that the “strong content cycle” this year is “likely to de-risk subscriber trends,” with 320 hours of original content planned by the company.

Rocketing higher this morning as well is LED specialists Cree (CREE), up $1.96, or 6%, at $34.30, after the company yesterday slightly beat revenue expectations for fiscal Q2 but beat earnings estimates by a wide margin, delivering 33 cents versus 22 cents expected. The company forecast this quarter ahead of consensus as well.

There’s at least one ratings change this morning, from Stephens’s Harsh Kumar, who raised his rating from Equal Weight to Overweight, citing impressive gross margin performance. Kumar raised his target to $42 from $31.

Shares of Advanced Micro Devices (AMD) are down 3 cents, or 1.3%, at $2.21, after the company more or less met Q4 expectations but forecast this quarters’ revenue to miss consensus.

On the negative front, Bernstein Research’s Stacy Rasgon, who has an Underperform rating on the shares, this morning cuts his price target to $1.50 from $2, writing that the company continues to “have substantial PC share loss,” with a 25% decline in its “computing and graphics” division. Writes Rasgon, “Q1 and 2015 guidance suggest that the worst is not yet behind us.”

In other earnings news, connector maker Amphenol (APH) a short while ago reported Q4 revenue rose almost 15%, year over year, to $1.43 billion, yielding EPS of 63 cents. That beat consensus for $1.37 billion and 59 cents.

The company forecast this quarter’s revenue and earnings below consensus, however, at $1.29 billion to $1.33 billion for revenue, and 55 cents to 57 cents for EPS, versus the average estimate for $1.35 billion and 57 cents.

Amphenol’s chief, R. Adam Norwitt, remarked that “The Company achieved growth in most markets with particular strength in the automotive, industrial and mobile networks markets.”

Shares of chip equipment maker ASML Holding (ASML) are up $1.41, or 1.4%, at $105.22, after Credit Suisse assumed coverage of the stock with a Neutral rating, one day ahead of the company’s expected earnings report, tomorrow morning.

Shares of Apple (AAPL) are higher by 33 cents at $109.05 in early trading after Oppenheimer & Co.’s Andrew Uerkwitz reiterated and Outperform rating, writing that the company’s fiscal Q1 report on January 27th will likely beat expectations, as will its Q2 outlook.

In other Apple news, The Guardian’s Stuart Dredgethis morning reports Apple has acquired a British startup, Semetric, which provides analytics tools for things such as tracking the social media prominence of things. Dredge writes Apple will use the technology to reboot the Beats music service it bought last year.

Chip maker Advanced Micro Devices (AMD) this afternoon reportedQ4 revenue in line with expectations but missed by a penny on the bottom line, and forecast revenue this quarter below consensus.

Revenue in the three months ended in December fell 22%, year over year, to $1.24 billion, coming in at break-even on the profit line .

Analysts had been modeling $1.24 billion in revenue and a penny per share in net income.

Gross margin, on a non-GAAP basis, was down 3 points from a year earlier, at 34%.

CEO Dr. Lisa Su cited the company’s progress despite what she called challenges in the PC business:

We made progress diversifying our business, ramping design wins and improving our balance sheet this past year despite challenges in our PC business. Annual Enterprise, Embedded and Semi-Custom segment revenue increased over 50% as customer demand for products powered by our high-performance compute and rich visualization solutions was strong. We continue to address channel headwinds in the Computing and Graphics segment and are taking steps to return it to a healthy trajectory beginning in the second quarter of 2015.

Revenue from the company’s “Computing and Graphics” division fell 16% from the prior-year period. The company said its average selling price for microprocessors was up from the prior year because of a better mix of notebook computer parts sold.

Sales of “semi-custom” parts rose 51%, the company said. Prices for GPU chips fell from the prior-year period because of “lower channel ASP,” said AMD.

For the current quarter, the company sees revenue declining by 12% to 18%, equivalent to $1.05 billion, at the mid-point. That is below the consensus estimate for $1.2 billion.

AMD shares are down 5 cents, or 2%, at $2.19, in late trading.

Correction: A prior version of this post erroneously stated AMD’s Q1 revenue view was in line with consensus, when in fact it was below. My apologies for any confusion caused by the error.

Microsoft (MSFT) is expected to formally unveil its “Windows 10” operating system update at its headquarters in Redmond, Washington tomorrow morning, and FBR & Co.’s Daniel Ives today reiterates an Outperform rating on the company’s shares, writing that its a “key component” of the company’s strategy.

In particular, for consumers, Windows 10 makes up for what was “soft” uptake of Windows 8, and the product remains the company’s bread and butter:

Although we believe Microsoft stands to benefit from strong growth opportunities in the cloud (e.g., Office 365/Azure) and mobile spaces, investors remain laser-focused on the success of the next Windows platform as this high-margin product line looks to overcome headwinds (PC market, soft Windows 8 adoption) in the field. We believe a more unified Microsoft platform will be music to the ears of CIOs worldwide and could also open up massive opportunities on the consumer front (cloud, mobile, apps) over the coming years as the common user-interface across devices adds familiarity/ease-of-use and interoperability.

Ives reiterates some points he made back in September, namely that Microsoft is striving toward a more “unified” user experience across different sorts of devices. He thinks it’s important that Microsoft get it right the first time, no matter what the ship date may be:

We continue to view Windows 10 as a potentially “game changing” product release for Microsoft, as this platform ties into Nadella’s mobile and cloud strategy with a number of features (improved search capabilities, enterprise interoperability between devices, etc.) helping to improve the user- experience and move away from challenges in its Windows 8 iteration. While some investors are eagerly awaiting a specific timeline for this next generation platform, we like the prudence coming out of Redmond around GA/beta testing as we want to see Microsoft “get it right” the first time around, rather than rush the product out to market earlier in 2015. Strategically speaking, the company’s game plan around a more unified platform is centered on creating a tightly woven integrated ecosystem for its software across all devices (e.g., smartphones, tablets, PC), potentially laying the seeds to reignite growth in its core Windows business over the coming years, in our opinion.

Shares of Intel (INTC) are down 29 cents, or 0.8%, at $36.16, following mixed coverage: one downgrade, one almost-upgrade, following the company’s Q4 report last Thursday.

On the negative front, JMP Securities’s Alex Gauna cut his rating on the stock to Market Underperform from Market Perform, with a $30 price target, writing that his “diligence with industry sources reveals” that there has “been a sharp reduction in server activity entering 2015.”

Our source is another supplier of components into server platforms, and while it is possible this is a timing and/or temporary anomaly, we believe current elevated valuation levels are not capable of absorbing such a setback, particularly given the unusual slowdown at this early stage in the Grantley upgrade cycle, the breadth and magnitude of the momentum change, and the risk of excess inventory overhang following the abnormally strong 11% q/q and 25% y/y growth that Intel reported for Data Center revenues last quarter.

In addition to the server risk, Gauna is concerned that last week “indications emerged that Global Foundries, Samsung, and TSM had secured orders for the next generation of Apple based on FinFET technology, a development that broadens and intensifies the competitive landscape.” Gauna adds to that other risks, such as servers using ARM Holdings (ARMH) technology, and Apple developing its own chip for its Mac personal computers.

“We believe Apple is working on its own ASIC for OS X in Macs and we see the availability of multiple FinFET foundry options for Apple as problematic for Intel, even if it secures some of this business for itself,” he writes.

On the lukewarm front, Canaccord Genuity’s Matt Ramsay writes that “our view of Intel fundamentals continues to trend more positive” because of things such as the Internet of Things and better manufacturing economics.

“In fact, we spent the holiday weekend conducting a deeper analysis with the intention to upgrade Intel shares to BUY,” writes Ramsay.

“However, given our estimate for essentially no EPS growth in 2015 and a valuation level we believe largely prices in expectations for solid 2016 EPS growth, we just can’t justify the requisite upside.”

Among the various factors, the server market is the brightest spot, with “Q4/14 DCG results very strong,” referring to the “data center group.” Server chip volumes was up 15% and prices up 10%.

The bad part of last week’s report was that the PC market is “back to reality,” he writes. “While 4% PCCG growth in 2014 was certainly better than our initial expectation, Q4/14 sales of $8.8B missed our $9.2B estimate” as “the enterprise WinXP upgrade tailwind is slowing.”

The “ugly” part of the report was the ongoing loss in mobile of $1 billion in the quarter. “With LTE thin-modem and lower-cost SoFIA products launching in 2015, management anticipates losses will be reduced, but only by roughly $800M.”

Shares of Intel (INTC) are down 44 cents, or 1.3%, at $35.75, giving up gains at the open, following a Q4 EPS beat yesterday afternoon and a forecast that was below Street expectations.

CEO Brian Krzanich went on CNBC’s “Squawk Box” this morning to field questions about PCs and other matters.

Estimates and price targets are mostly staying put this morning. The bulls are convinced that Intel having “under-shipped” the PCmarket knocks out one leg of the stool for the bears’ position. The bears are still inclined to believe a bounce-back in commercial PCs last year is now evaporating.

The 15% jump in server chip shipments in the quarter is an indisputable bright spot that both sides seem to agree will continue for a while to come.

Bullish!

David Wong, Wells Fargo: Reiterates an Outperform rating, and a $40 to $50 valuation range. “We are very impressed with Intel’s December quarter result and the company’s 2015 plans. Intel reported gross margin of 65.4% for its December quarter, more than a percentage point above the midpoint of its original guidance, with its data center segment sales growing 25% year over year. The company trimmed its 2015 capex plan, to a new midpoint of $10 billion, comparable to the $10.1 billion Intel spent in 2014 and significantly below the $10.7-$11.0 billion capital spending in each of the years 2011-2013, with 2015 revenue that is likely to be substantially higher than in any of these years. Our 2015 estimates remain unchanged at $2.40. We are introducing our 2016 revenue estimate of $63 billion and EPS estimate of $2.80, up from our 2015 estimate of $2.40. We are reiterating our Outperform rating on Intel, which remains our Top Pick.”

Mark Lipacis, Jefferies & Co.: Reiterates a Buy rating, and a $50 price target. “INTC’s Data Center Group (DCG) posted 18% growth and 51% op margin in 2014. We model DCG growth to decelerate to 16% in 2015 and deliver $0.22 of EPS growth in 2015. Along with lower shares ($0.13 of EPS growth), and lower Mobile losses ($0.13) partially offset by other losses, we model INTC EPS to increase by $0.44 in 2015, well ahead of Consensus’ $0.11 growth. We would use the aftermarket weakness as a particular buying opportunity [...] To say DCG is a hidden gem is an understatement. DCG posted 25% YY growth and 55% op margins in 4Q14, and for 2014 the $14 billion business posted 18% growth and 51% op margins, better than the 9- yr CAGR of 15%, as all four segments (Enterprise, Cloud, High-Performance Computing, Networking) posted growth. We think Intel’s new server cycle (Grantley) helps in 2015, but view drivers in DCG to be largely secular.

Christopher Rolland, FBR & Co.: Reiterates an Outperform rating, and a $42 price target. “Constructively, the bear case for runaway capex was once again dismayed as the company lowered spending guidance $500 million for the year. Interestingly, management was steadfast on the timing for Skylake in 2H15 (we worry a bit about the potential for a pause in PC shipments ahead of the combination of processor and Win10 OS launch). Additionally, PC revenue in 4Q14 (and 1Q15 guidance) was slightly disappointing as we worry about XP refresh tailwinds dissipating. Lastly, the Broadwell ramp appears more expensive than anticipated, creating sizable GM differences for 1Q15 (60.0% guidance versus the Street’s 61.2%), a negative in our view. Overall, while the lack of growth in PC has been discouraging, we believe that Moore’s law is considerably more durable than any one computing form factor and presents as good a business plan as any in the technology industry. We are increasingly confident that Intel can opportunistically extract value from the extra transistors afforded to it through the best silicon manufacturing operations in the world.”

Jonathan Pitzer, Credit Suisse: Reiterates an Outperform rating and a $40 price target. “INTC under-shipped PCs in C4Q, forcing bears into prevent defense – it’s more likely investors are bull-rushed by DCG growth than sacked by negative PC datapoints, and (5) lack of EPS upside to kick-off CY15, after ~20% upside during 2014, is a fair-catch but ignores conservative rev and GM guidance, improving linearity, accelerating FCF, and relentless pursuit of cash return. While a victory formation is still too early, INTC continues to block-and-tackle extremely well and we continue to see long term earnings power of $4.00 plus (C4Q14 core-earnings annualized is $3.86).”

Bearish!

Timothy Arcuri, Cowen & Co.: Reiterates a Market Perform rating, and raises his target to $38 from $36. “Near-term, the bear case around a PCG miss has lost much of its bite as INTC made CQ4 despite obviously burning a good bit of channel inventory. From here, it should grow more in-line w/PC mkt – not great, but removes a key fear among bears. Additionally, there is still no reason to believe DCG mo’ will slow and MCG losses are set to come down which will help fuel the narrative that things are “getting better”. Lastly, the willingness of big volume chipmakers like QCOM/AAPL to whip biz around at 14nm more than at prior nodes creates fertile ground for an improving foundry narrative as it rolls out 10nm in late ’15 (albeit we think still limited if INTC remains unwilling to release its design kits for fear of relegating its leading edge process lead). Overall though, we still can’t see LT EPS power much better than $3.40 (writing MCG losses to zero (hardly a slam-dunk), and -2% and 13% LT growth for PCG and DCG respectively). In our view, this implies a $44 stock at best and a lot has to go right.”

Stacy Rasgon, Bernstein Research: Reiterates an Underperform rating, and a $30 price target. “So, have we seen the “air pocket?” Perhaps. To spin things positively, our channel analysis (roughly updated for Q4) now suggests the company did in fact undership the end market (likely below original expectations) meaning it could have come and gone, and data center strength is somewhat making up for what appears to be a genuine PC shortfall. To apply negative spin, the magnitude of under-shipment in the 2H appears less than what would ordinarily be typical, Intel’s unit shipments still remain well above market data on a YoY basis, and account receivable DSOs increased sharply [...] It seems clear that at least some of the “air pocket” dynamics we were looking occurred last night (though supported as they were by data center upside); and as such, it is fair to say that we have a bit less conviction on the immediate air pocket-driven short call following the report. That being said, there remains uncertainty as to whether there is more to come, as well as (potentially alarming) DSO dynamics, greater demands on the the 2015 DCG trajectory, and mobile economics which remain astonishingly bad. Additionally, we expect no positive revisions as a result of the report, and valuation remains elevated. At this time, we maintain our underperform rating.”

Cody Acree, Ascendiant Capital Markets: Reiterates a Sell rating, and a $24 price target. “Overall, it looks as though the PC market wrapped up a fairly healthy 2014, largely driven by the temporary enterprise upgrade cycle on Microsoft’s ending of Windows XP support. INTC’s PC segment sales were up 3% annually in Q4 to $8.9 billion, which we believe was below consensus estimates of $9.2 billion. As we’ve heard from many of our PC OEM contacts, it looks as though the upgrade cycle is tapering off and we expect a return of a secular declining PC market in 2015. With INTC expecting mid-single digit 2015 overall top-line growth, the company will be increasingly reliant on strong data center performance and growth of IoT.”

James Covello, Goldman Sachs: Reiterates a Sell rating, and a $23 price target. “We maintain a Sell rating on the stock as our positive view on Intel’s management team and technology is more than offset by lagging fundamentals and expensive valuation [...] We continue to believe EPS will be pressured by structural challenges in the PC market. Despite doubling capex 2011-2015E, Intel’s revenue, EPS and ￼￼￼￼￼￼￼FCF have only grown at 2%, -2% and 0% CAGRs respectively.”

Shares of Intel (INTC) are down 5 cents at $36.14, in early trading, continuing weakness from the after-hours session last night after the company beat Q4 earnings expectations, on slightly-lower-than-expected revenue, and forecast this quarter’s revenue slightly below consensus.

CEO Brian Krzanich appeared on CNBC’s Squawk Box this morning, facing anchors Becky Quick, Joe Kernen, and Andrew Ross Sorkin, but also noted short seller Jim Chanos, who had advised before Krzanich came on to short Intel shares.

Quick asked Krazanich about the after-hours dip in the stock, on what appeared to be a slightly disappointing Q1 forecast:

I try not to watch the stock’s day to day trends because the strategy really plays out over a long time. For us, the Q1 forecast was right in line with a seasonal transition, and in line with our expectation for 2015 for mid-single-digit [revenue] growth.

Quick asked Krzanich to “make the case” for why Intel will be a winner in mobile chips in five years’ time:

The mobile space is becoming more and more important. Fewer and fiewer companies have the capability to build devices. The intellectual property in that area is very important. You’ve got to set the pace in that area. Whether you want to sell servers, or PCs, most vendors want to have a single source to go to. So, it’s important that we are in the mobile space. You can’t be absent from that space and also be in the PC space, and the internet of things space.

Quick asked Krzanich about his outlook on the PC market:

One thing we’ve been able to do is really transition the company to grow, with a PC base that’s flat. Our projection for 2015 is for a relatively flat PC base, from a unit perspective, and a slight decline from ASPs [average selling prices]. With our data center, our internet of things, our flash memory, all the other things we’re in, we can grow. So our projection for PCs this year is flat.

Quick asked about rumors this week that Apple (AAPL) could be prepared to dump Intel chips in Mac computers and replace them with Apple’s own custom parts:

I just hear the same rumors that are out there. Our relationship with Apple is strong and their products are great. Apple are always going to choose the supplier that can give them the most amount of innovation. Our job is to continue to give them that, with parts that are better than competitors. We have to provide the most competitive parts in terms of performance, price, and reliability.

When it was Chanos’s term, he asked about Intel’s receivables, which he noted were up 24% in the quarter versus a 6% climb in revenues.

Krzanich replied,

We are pretty comfortable with inventories, they’re in line with seasonal patterns. There was a slight burn as we went through Q4. Receivables were up a little, but that’s normal. Overall, we are very comfortable with where inventory is. It pretty much played out as we expected.

Chanos also asked about capital expenditures, noting that the expected $10 billion expense this year, and a pattern of $10 to $11 billion per year in recent years, is running well ahead of depreciation expense of $7 billion, prompting some to wonder whether depreciation is understated, given that the difference amounts to 50 cents to 75 cents per share.

Krzanich pointed out that the company’s capital spending has different times frames for depreciation. “Some is buildings, which may have 20-year depreciation cycles, and then there’s equipment for our factories that may have a 4-year or 5-year cycle, so when we project it all out, we are very comfortable with where it’s at. It does climb, but not excessively so.

The first of the big December quarter earnings is due in a short while with the Q4 report of Intel (INTC), after the closing bell.

Analysts are, on average, have been modeling $14.704 billion in revenue and 66 cents per share in earnings.

For the current quarter, the consensus estimate is $13.77 billion and 51 cents.

Embedded within this afternoon’s report will be indicators of how the PC business is doing after having delivered upside for Intel most of last year. Analysts will also scrutinize the health of the server chip business, and how much Intel has lost on its mobile chip efforts.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.